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YUHO Report YUHO Report (financial report) | IR Information | Sakata Seed Corporation

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YUHO

REPORT

Fiscal Year Ended May 31, 2013

Traded TSE1

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This report is based on the Company’s Japanese-language annual filing with the Financial Services Agency and supplemented with materials that facilitate comparison with the Company’s peers. The materials from the annual filing with the Financial Services Agency have been edited and reorganized in a format more familiar to the international investment community. All information contained in this report has been obtained from sources believed to be reliable, but the accuracy of the data and the translation and the completeness and timeliness of the information are not warranted by the Company, Pacific Associates, or PRONEXUS. None of the above parties shall be responsible for any error or omission or for results obtained from the use of this information.

Table of Contents

Profile ... 3

Financial highlights...3

Peer comparisons ...3

Business Overview ... 4

Contents of business...4

Group companies ...6

History ...7

Risk factors...9

Research and development ...11

Analysis of financial condition and results of operations ...12

Corporate governance ...17

Directors ...32

Employees...33

Union ...33

Acquisition of treasury stock ...33

Cash Flows... 34

Consolidated statement of cash flows ...34

Capital expenditures ...36

Dividend policy ...36

Operations... 38

Consolidated income statement...38

Consolidated statements of comprehensive income ...39

Consolidated statements of changes in net assets ...40

Results of operations ...42

Segment information ...47

Issues requiring action ...49

Sales and procurement ...50

Selling, general and administrative expenses...51

Capital Structure... 52

Consolidated balance sheet...52

Financial instruments ...55

Market value of securities ...58

Derivatives...59

Retirement benefits ...60

Deferred taxes...61

Accounting Policies... 62

Share-related Information ... 64

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Profile

Financial highlights

Years ended May 31; Millions of yen 2009 2010 2011 2012 2013

Changes (%) 2013/2009

Consolidated

Net sales 45,355 46,518 47,165 46,988 50,274 110.8 Ordinary profit 675 1,835 3,410 2,899 3,564 528.0 Net income (1,709) 1,001 1,320 1,902 3,098

Comprehensive income - - 138 1,075 7,082

Net assets 72,399 73,236 71,321 71,494 77,686 107.3 Total assets 85,602 85,740 83,332 83,496 89,787 104.9 Net assets per share (Yen) 1,574.47 1,592.64 1,582.42 1,586.47 1,723.66 109.5 Net income per share (Yen) (34.75) 21.80 28.90 42.28 68.86

Net income per share, fully diluted (Yen) - - - - -

Net cash provided by (used in) operating activities 680 3,199 3,567 3,020 715 105.1 Net cash provided by (used in) investing activities 2,622 (103) (476) (2,592) 555 21.2 Net cash provided by (used in) financing activities (4,705) (1,445) (2,655) (978) (1,082)

Cash and cash equivalents at year-end 5,304 7,093 7,300 6,617 7,233 136.4

Employees 1,823 1,825 1,850 1,923 1,998 109.6

Peer comparisons

Percentage 2009 2010 2011 2012 2013

Net income / net sales (3.8) 2.2 2.8 4.0 6.2

Peers 2.2 3.8 2.3 0.4 (0.7)

Ordinary profit / net sales 1.5 3.9 7.2 6.2 7.1

Peers 4.8 6.8 5.5 1.5 1.2

Net income / assets (1.8) 1.2 1.6 2.3 3.6

Peers 1.1 3.8 2.2 0.7 (0.9)

Ordinary profit / assets 0.7 2.1 4.0 3.5 4.1

Peers 4.6 6.7 5.2 1.9 1.3

Equity / assets 84.5 85.3 85.5 85.5 86.4

Peers 46.4 47.3 47.3 45.8 44.2

Net income / equity (2.2) 1.4 1.8 2.7 4.2

Peers 3.4 9.2 5.7 (4.4) (11.3)

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Business Overview

Contents of business

The Corporate Group, composed of Sakata Seed Corporation (“the Company”), 38 subsidiaries and 2 affiliated companies, is engaged in selling horticultural products and materials (vegetable seeds, flower seeds, bulbs, seedlings and agricultural and

horticultural products).

The Group’s businesses and the relationship of the Company and its subsidiaries and affiliated companies to these businesses are outlined below.

1. Domestic wholesaling (the Company and 7 subsidiaries)

This division produces or procures vegetable seeds, flower seeds, bulbs, seedlings, and agricultural and horticultural products and wholesales these products to

distributors, etc., in Japan.

2. Overseas wholesaling (the Company, 27 subsidiaries and 2 affiliated companies)

This division produces or procures vegetable seeds, flower seeds, bulbs, seedlings, and agricultural and horticultural products and wholesales these products to

distributors, etc., overseas.

3. Retailing (the Company and 1 subsidiary)

The retailing division procures products for gardening hobbyists and sells them to home improvement retailers in Japan. It also operates a mail-order sales business and a garden shop.

4. Others (the Company and 3 subsidiaries)

This division provides landscaping construction services for clients in the public and private sectors, and operates an insurance agency and a temporary staffing agency. It also grows, processes and sells agricultural products.

The following table presents an outline of the Group’s business segments and the companies participating in them.

Changes in scope of consolidation:

• Addition:

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Principal operations Main companies involved

Domestic wholesaling

Wholesaling of seeds and agricultural and horticultural products to distributors and other producers

(Products: vegetable seeds, flower seeds, bulbs and seedlings) 3 companies, including the Company

SAKATA SEED CORPORATION (Consolidated subsidiaries)

Sakata Logistics Co., Ltd., Brolead Co., Ltd.

Wholesaling of agricultural and horticultural products to distributors and other producers

(Products: agricultural and horticultural materials) 2 companies, including the Company

SAKATA SEED CORPORATION (Consolidated subsidiary)

Jiffy Pot Products Co. of Japan, Ltd.

Production of seeds and agricultural and horticultural products for distributors and other producers

(Products: vegetable seeds, flower seeds, bulbs and seedlings) 4 companies

(Consolidated subsidiaries)

Yamagata Celltop Co., Ltd., Nagano Celltop Co., Ltd., Hida Celltop Co., Ltd., Fukuoka Celltop Co., Ltd.

Overseas wholesaling

Wholesaling of seeds and agricultural and horticultural products to distributors and other producers

(Products: vegetable seeds, flower seeds, bulbs and seedlings) 27 companies, including the Company

SAKATA SEED CORPORATION (Consolidated subsidiaries)

Sakata Seed America, Inc., Sakata Seed de Mexico, S.A., Sakata Centroamerica, S.A., Sakata Seed de Guatemala S.A., Alf Christianson Seed Co., Sakata Seed Sudamerica Ltda., Sakata Korea Co., Ltd., Sakata Vegetables Europe S.A.S., Sakata Ornamentals Europe A/S, Sakata Holland B.V., Sakata Seed Iberica S.L., Sakata UK Limited, Sakata Seed Southern Africa (Pty) Ltd., Sakata Seed India Private Limited and 10 other companies

(Affiliated companies)

Sakata Polska Sp.z o.o. and 1 other company

Production of seeds for distributors and other producers (Products: vegetable seeds, flower seeds, bulbs and seedlings) 3 companies

(Consolidated subsidiaries)

Sakata Seed Chile S.A., Sakata Siam Seed Co., Ltd., Sakata Seed (Suzhou) Co., Ltd.

Retailing

Selling to gardening hobbyists through home improvement retailers 2 companies, including the Company

SAKATA SEED CORPORATION (Consolidated subsidiary) Nishio Shokubutsu Co., Ltd.

SAKATA SEED CORPORATION Mail-order sales, garden shop

The Company

Others

Landscaping, insurance agency, temporary staffing agency, cultivation of agricultural products

4 companies, including the Company

SAKATA SEED CORPORATION (Consolidated subsidiaries)

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Group companies

Millions of yen or as indicated Capital stock Percent ownership

Sakata Logistics Co., Ltd. 30 100

Sakata Kosan Co., Ltd. 10 100

Brolead Co., Ltd. 50 100

Yamagata Celltop Co., Ltd. 50 100

Nagano Celltop Co., Ltd. 60 70

Hida Celltop Co., Ltd. 70 62

Fukuoka Celltop Co., Ltd. 100 100

Jiffy Pot Products Co. of Japan, Ltd. 18 100

Nishio Shokubutsu Co., Ltd. 21 52

Sakata Techno Service Ltd. 13 100

Taneto Farm Co., Ltd. 50 100

Sakata America Holding Company Inc. - 100

Sakata Seed America, Inc. US$ 1,500 thousand 100

Sakata Seed de Mexico, S.A. Mex$ 26,013 thousand 100

Sakata Mexico, S.A. Mex$ 50 thousand 100

Grupo Sakata Seed de Mexico, S.A. de C.V. Mex$ 23,833 thousand 100

Sakata Centroamerica, S.A. CRC 10 million 100

Sakata Seed de Guatemala S.A. GTQ 1,541 thousand 100

Alf Christianson Seed Co. US$ 7 thousand 100

Alfco, LLC US$ 0 thousand 100

Seaward Investments, Inc. US$ 0 thousand 100

Quincy Investments, LLC - 100

Bayview Ridge Properties, LLC US$ 1 thousand 100

European Sakata Holding S.A.S. EUR 48,012 thousand 100

Sakata Holland B.V. EUR 420 thousand 100

Sakata Vegetables Europe S.A.S. EUR 5,630 thousand 100

Sakata Ornamentals Europe A/S DKK 133 million 100

Sakata Seed Iberica S.L. EUR 3 thousand 100

Sakata UK Limited GBP 100 thousand 100

Sakata Tarim Urunleri ve Tohumculuk Sanayi ve Ticaret Limited Sirketi

TRY 1,500 thousand 100

Sakata Seed Southern Africa (Pty) Ltd. ZAR 598 thousand 100

Sakata Vegenetics RSA (Pty) Ltd. ZAR 0 thousand 100

Sakata Seed Chile S.A. CLP 5,089 million 100

Sakata Seed Sudamerica Ltda. BRL 13,776 thousand 100

Sakata Siam Seed Co., Ltd. THB 162 million 100

Sakata Seed India Private Limited INR 150 million 100

Sakata Korea Co., Ltd. KRW 15,540 million 100

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History

Year Month Event

1913 July Takeo Sakata (the Company's founder) establishes Sakata Noen in Shirosato-mura,

Kanagawa (currently, Rokkakubashi, Yokohama).

1916 Company name changed to T. Sakata & Co.

1923 September Company building lost in fire following the Great Kanto Earthquake.

1930 May Chigasaki Breeding Station established.

1942 December Merger of T. Sakata & Co., Atariya Noen, Fujita Zenbei & Co., Enomoto Tokujiro & Co. and Yomoto Co. completed to form T. Sakata & Company, capitalized at 195,000 yen.

1951 December Retail store operations begun (currently, Garden Center Yokohama).

1959 April Misato Research Station established.

1960 April Chogo Research Station established.

1966 August Hazawa Office established.

1967 August Fukuoka Sales Branch (currently, Kyushu Branch) opened.

1971 June Kimitsu Research Station established.

July Sendai Sales Branch (currently, Sendai Sales Office) opened.

1974 August Shirakawa Sales Branch opened (closed in May 2002).

1975 October Shares of Jiffy Pot Products Co. of Japan, Ltd. acquired.

1976 January Okayama Sales Branch opened (closed in May 2004).

1977 July Sakata Seed America, Inc. established.

1979 June Kyoei Noji Co., Ltd. (currently, Sakata Logistics Co., Ltd.) established.

1980 October Sapporo Sales Branch (currently, Hokkaido Branch) opened.

1985 October Nagoya Sales Branch opened (closed in May 2006).

1986 January Corporate name changed to Sakata Seed Corporation.

1987 January Yamagata Vegetable Center, Co., Ltd. (currently, Yamagata Celltop Co., Ltd.) established.

May Shares listed on the Second Section of the Tokyo Stock Exchange.

1988 January Sakata Kosan Co., Ltd. established.

June Higashimura Seed Co., Ltd. (currently, Brolead Co., Ltd.) established.

December European Representative Office established.

1990 March European Representative Office upgraded to local subsidiary through establishment of Sakata

Seed Europe B.V. (currently, Sakata Holland B.V.).

April Kakegawa Research Center established.

May Nagano Celltop Co., Ltd. established.

June Kanto-Kita Sales Branch opened (closed in May 2006).

November Hokkaido Research Station established.

Shares listed on the First Section of the Tokyo Stock Exchange.

December Hida Celltop Co., Ltd. established.

1991 July Yokohama Sales Branch (currently, East Japan Branch) opened.

August Sakata Seed Chile S.A. established.

1992 May Fukuoka Celltop Co., Ltd. established.

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Year Month Event

1994 October Sakata Seed do Brasil Ltda. (currently, Sakata Seed Sudamerica Ltda.) established.

1995 February Corporate headquarters and head office moved to present site (Tsuzuki-ku, Yokohama).

1996 February Hokkaido Sales Branch (currently, Hokkaido Branch) established (through move and change

of name of Sapporo Sales Branch).

March Shares of Samuel Yates Ltd. (currently, Sakata UK Limited) acquired.

April Sakata Seed France S.A.R.L. (currently, Sakata Vegetables Europe S.A.S.) established.

June Osaka Sales Branch (currently, West Japan Branch) opened.

Sakata Siam Seed Co., Ltd. established.

Sakata Seed Iberica S.L. established.

September Shares of Flora Feliz S.A. in Costa Rica (currently, Sakata Centroamerica, S.A.) acquired.

1997 March Shares of Chung Won Seed Co., Ltd. (currently, Sakata Korea Co., Ltd.) acquired.

April Shares of Nishio Shokubutsu, Co., Ltd. acquired.

1998 October Garden Center Shonan opened (closed in November 2005).

1999 February Sakata Seed (Suzhou) Co., Ltd. established.

December Shares of MayFord Holdings (Pty) Ltd. (currently, Sakata Seed Southern Africa (Pty) Ltd.)

acquired.

2001 February European Sakata Holding S.A.S. established.

June Sakata Vegenetics RSA (Pty) Ltd. established.

September Sakata Techno Service Ltd. established.

2002 April Narita Office opened.

Alf Christianson Seed Co. and Alfco, Inc. incorporated into Group as subsidiaries through share buyback and retirements.

August System of regional branches (Hokkaido Branch, East Japan Branch, West Japan Branch,

Kyushu Branch) established.

2003 July Sakata Ornamentals Europe A/S established following acquisition of the flower division of L.

Daehnfeldt A/S.

2006 February Yaita Logistics Center opened.

2008 May Sakata Seed India Private Limited established.

2010 February Sakata America Holding Company Inc. established.

2011 September Sakata Tarim Urunleri ve Tohumculuk Sanayi ve Ticaret Limited Sirketi established.

2012 December Nagoya Sales Office established by West Japan Branch.

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Risk factors

The following is a discussion of factors that could negatively impact the Company’s financial performance and financial condition. The forward-looking statements in the discussion are based on judgments made by the Company as of the last day of the fiscal year under review. In this connection, the Company is making every effort to prepare for risks to which the Great East Japan Earthquake recalled the attention, and to apply the lessons learned from that event.

1. Weather-related risks

• Climate changes around the world exert a significant impact on sales of vegetable seeds, flower seeds, bulbs and seedlings; poor weather conditions could thus erode sales and adversely affect the Company’s financial

performance.

• The Company carries out seed production in 19 countries around the world. In each region, the Company takes steps to disperse risk by consigning seed production to multiple outside producers. Despite these precautions, it may be unable to assure sufficient quality and quantity of production in the event of sudden changes in the local weather. Such circumstances may exert a significant negative impact on its financial results.

2. Impact of geopolitical and social systems

The Company is engaged in production, R&D and sales operations in 20 countries around the world. It operates 5 breeding and research stations in Japan and another 9 overseas (in 7 countries). This extensive base of operations exposes the Company to the following kinds of risks, which could have a significant impact on the

Group’s financial performance:

• Sudden and unexpected enactment of laws and regulations, or amendments to existing laws and regulations

• Political and economic upheaval

• Social disorder caused by terrorism or other eruptions of violence

• Earthquakes or other natural disasters

• Information age-related problems, including computer viruses and information leakage

3. Development risks, including those related to human resources

• The long-term nature of breeding (over 10 years) exposes the Company to the following kinds of risk:

1) Investment risk—that economic payoffs may fall short of expectations

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3) Market risk—that market needs may change during the course of development

4) Competitive risk—that a product may receive a less favorable reception than a product developed by another company

• In addition to access to genetic resources, successful development hinges to a large extent on the abilities of individual breeders. There is a risk that a breeder may leave the Company midway through a project, thus raising obstacles to its successful completion. Failure to produce an intended high-quality variety could have a significant impact on the Company’s financial performance.

4. Risks related to safety

• The Company’s creed, articulated by its founder Takeo Sakata, is “Quality, Reliability and Service.” With this as a basis, the Company seeks to gain customers’ confidence in the quality and safety of its products. Accordingly, it responds quickly and effectively when complaints arise, and works diligently to prevent problems from occurring.

• Because the Company’s products are examples of “living genetics,” however, appropriate levels of quality or uniformity may not always be achieved.

Safety-related problems could also arise from environmental factors or manufacturing technologies, rather than from the seeds themselves.

Safety-related problems could have a significant impact on the Company’s financial performance.

5. Risks related to currency fluctuations

• Financial statements prepared in local currencies are translated into yen during consolidation. Fluctuations in foreign exchange markets could thus reduce earnings, even if earnings in local currencies remain unchanged.

• Currency fluctuations may also impair the Company’s ability to procure raw materials and merchandise and pose obstacles to exporting. To minimize such impacts, the Sakata Group maintains a close watch over trends in the foreign exchange markets. Sudden and unexpected market changes could, however, negatively affect the Company’s financial performance despite these efforts.

6. Changes in the value of assets held

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7. Risks from natural disasters and accidents

The occurrence of natural disasters or other unforeseen events could exact major impacts on the financial performance and/or business activities of the Sakata Group.

Research and development

The R&D Division oversees breeding for vegetables and flowers, and develops new varieties for the world’s markets.

The Company has 5 research facilities in Japan, including its principal research station in Kakegawa, Shizuoka Prefecture. It also conducts research at 9 facilities in overseas locations, including North America.

Throughout the Group, 373 people are involved in research and development. Total R&D expenditures amounted to ¥4,196 million during the fiscal year under review.

Domestic and overseas wholesaling

Vegetables

1. The following varieties won top prizes in a vegetable variety competition held by the Japan Seed Trade Association:

• Broccoli: PIXEL No. 2 and GREEN CANNON

• Daikon radish: NATSU NO KAMI

• Tomato: REISHUN

PIXEL No.2 and NATSU NO KAMI also won the award of Minister of Agriculture, Forestry and Fisheries.

2. New varieties

BETA-441: a carrot that offers excellent uniformity, quality and disease-resistance

WHITE CANDY: a cauliflower with excellent leaf coverage of florets that, which can be harvested when the head is pure white

CAROL PASSION: a cherry-tomato offering both excellent resistance to various diseases and superior flavor

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Flowers

1. Prize-winning varieties exemplifying the Company’s world-class breeding capabilities

FOURS FOURS WHITE, an early-maturing, extra-small lisianthus with rose-like blossoms—winner of the top prize in the lisianthus category in the summer competition at the world’s largest flower expo, the Floriade 2012 World Horticulture Expo in Venlo

PROFUSION DOUBLE HOT CHERRY, a zinnia that was awarded a top prize in the All-America Selections as well as a gold medal winner at Fleuroselect

PROFUSION DOUBLE DEEP SALMON, another zinnia that was awarded a top prize at the All-America Selections

2. Other prize-winning varieties

AZUMI ROSE PINK, a pom-pom type aster that received a top prize and the award of Director-General of Food Industry Affairs Bureau of Agriculture, Forestry and Fisheries Ministry at the 58th flower variety contest held by the Japan Seed Trade Association

THUMBELINA PETITS YELLOW, a viola that was awarded a top prize and award at the 59th flower variety contest held by the Japan Seed Trade Association

• To commemorate the 100th anniversary of the Company’s founding

1) The ECOTUNIA petunia, which contributes to energy savings by allowing growers to use less heat during cultivation

2) APRI, an extremely fast-blooming, high-quality primula that helps growers reduce production losses

3) PASSIO, a large-blossom pansy that forms a nice compact shape even when grown in high temperatures

Analysis of financial condition and results of operations

1. Significant accounting policies and estimates

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• In preparing these statements, the Company makes all necessary estimates based on rational standards.

2. Analysis of financial performance (percentage changes are year-on-year.)

Net sales and operating income

• Net sales: due to a significant increase in exports, net sales rose by 7.0% to ¥50,274 million.

• Cost of goods sold

1) Increased by 8.2% to ¥25,921 million.

2) Gross profit on sales thus increased by 5.8% to ¥24,353 million.

• SG&A expenses

1) Increased by 8.2% to ¥22,133 million.

2) Operating income thus decreased by 13.4% to ¥2,219 million.

Nonoperating income and expenses

• The positive balance in the nonoperating accounts expanded from ¥336 million in the previous year to ¥1,345 million, reflecting the recognition of ¥795 million in foreign exchange gains in the year to May 2013 (cf. ¥177 million in foreign exchange losses in the previous year).

• Ordinary profit consequently increased by 23.0% to ¥3,564 million. Extraordinary income and income before taxes and other adjustments

• Gain on sales of fixed assets of ¥193 million

• Whereas the Company recognized a loss of ¥377 million on valuation of investment securities in the previous year, it recognized a gain of ¥697 million on sales of investment securities in the year to May 2013.

• The net balance in the extraordinary accounts consequently climbed from minus ¥556 million to plus ¥725 million.

• Income before taxes and other adjustments was ¥4,290 million as a result. Corporate taxes

• Corporate taxes increased from ¥448 million in the previous year to ¥1,186 million.

Net income

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3. Financial condition

Assets

• Total assets: increased by ¥6,290 million to ¥89,787 million.

1) Increase of ¥1,134 million in notes and accounts receivable - trade

2) Increase of ¥2,600 million in inventories

3) Increase of ¥2,117 million in investment securities

Liabilities

• Total liabilities: increased by ¥98 million to ¥12,100 million.

1) Increase of ¥305 million in long-term and short-term borrowings

2) Increase of ¥288 million in income taxes payable

3) Increase of ¥509 million in long-term deferred tax liabilities

4) Decline of ¥570 million in notes and accounts payable - trade

5) Decline of ¥360 million in other current liabilities

Net Assets

• Total net assets: increased by ¥6,192 million to ¥77,686 million 1) Increase in retained earnings of ¥2,198 million

2) Increase in unrealized gains (losses) on other securities of ¥2,124 million

3) Increase in foreign currency translation adjustments of ¥1,851 million

Equity ratio

• The equity ratio at year-end was consequently 86.4% compared to 85.5% at the previous year-end.

4. Strategic situation and forecasts

The many structural problems facing Japanese agricultural industry have created a difficult business environment for the Company, which has recently achieved only minimal growth in seed sales in the domestic market. To sustain growth under these conditions it will be crucial to develop a stronger sales capability in Japan while capturing shares in more international markets. The Company recognizes that this will require it to operate at a higher level of profitability than it has to date. In accordance with this recognition, it plans to advance the following critical

strategies:

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(2) Bolster the retailing division’s profitability by encouraging greater

collaboration between the domestic wholesaling and retailing businesses.

(3) Take aggressive steps to cultivate a presence in the major markets of India and China.

(4) Centralize management of seed production strategies and ensure supplies of high-quality seeds.

(5) Create a global R&D presence and develop competitive products efficiently.

• Outlook 1) Economic

a) Globally, despite the ongoing economic recovery in the United States, there is lingering uncertainty concerning the situation in Europe and the slowing pace of growth in emerging nations.

b) In Japan, the economy is responding to the new government’s economic policies, with recovery underway and business conditions brightening.

2) Based on this outlook, the Company forecasts higher sales in its domestic wholesaling operations.

a) Vegetables: particularly broccoli, daikon, tomatoes and spinach

b) Flowers: sunflowers, pansies, lisianthus, and varieties used in flower beds or sold as seedlings

c) Other: projected stronger sales of seedlings and horticultural materials

3) Domestic retailing: lower sales anticipated

a) In home center supply operations, a continued focus on sales of seeds and other original Sakata merchandise

b) A further narrowing of the range of merchandise supplied to home centers, etc, through elimination of unprofitable lines

c) Simultaneously, efforts to improve operating income through extensive cost cutting, especially in the area of selling expenses

4) Mail order: higher sales and profits forecast

a) Making more innovative uses of the EC website, which has been generating consistent growth year after year

b) Developing stronger product-procurement capabilities

c) Limiting lost of opportunities by reducing the number of out-of-stock items

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5) Garden center: higher sales projected, based on a merchandise lineup that will offer greater satisfaction and on improved in-store service

a) For vegetables, creating presentations that link Sakata’s seeds with the food on customers’ tables

b) For flowers and ornamental plants, proposing decorative uses that are tailored to specific moments and places in people’s everyday lives

6) Overseas wholesaling

a) Vegetables: using the existing sales network to full advantage—by

emphasizing product categories in which the Company is strongest, while also expanding sales of new product categories

b) Flowers: while sales of flower seeds will continue to pose significant challenges, the Company will focus on activities that contribute to enhanced profitability.

5. Analysis of sources of capital and liquidity

In the following statement, all content related to the future is based on judgments made by the Sakata Group as of the end of the fiscal year under review.

2009 2010 2011 2012 2013

Equity ratio (%) 84.5 85.3 85.5 85.5 86.4

Market capitalization ratio (%) 70.7 65.7 61.2 57.1 66.1

Interest-bearing debt ratio (%) 483.1 82.1 52.9 60.5 297.9

Interest coverage ratio (times) 7.3 43.2 41.1 49.4 12.7

(Notes)

Equity ratio: total equity/total assets

Market capitalization ratio: total market capitalization/total assets Interest-bearing debt ratio: interest-bearing debt/cash flows Interest coverage ratio: cash flows/interest paid

1. All indicators are calculated on a consolidated basis.

2. The total market value of the Company’s shares is calculated on the basis of the total number of shares outstanding, less treasury stock.

3. Cash flows refer to cash flows from operations from the Company’s consolidated statement of cash flows. 4. Interest-bearing debt includes all debt on the consolidated balance sheet on which the Company pays interest.

• Major funding requirements

1) In addition to procurement expenses for seeds and horticultural products, the Sakata Group’s funding requirements revolve principally around

production-related expenses and SG&A and other operating costs. Its major operating expenditure categories include salaries, bonuses and other

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2) The Group also maintains a program of ongoing capital investment aimed at upgrading, expanding and rationalizing its production facilities and

strengthening its R&D capabilities.

3) The Sakata Group’s interest payment burden from its interest-bearing debt as of the end of the fiscal year under review was sufficiently low as a

percentage of expenditures. At its current level of interest-bearing debt, the impact on the Group’s operations of an increase in interest rates would be limited.

• Possibilities for financing

With respect to liquidity, the Group’s approach is to deal with unforeseen future situations by ensuring that it has sufficient liquidity on hand. With respect to financing, Sakata Seed Corporation and its domestic and overseas subsidiaries all maintain good relationships with their correspondent financial institutions, enabling the respective companies to respond appropriately to situations in their locale.

6. Management’s assessment of issues and its future policies: see discussion under “Issues requiring action.”

Corporate governance

Corporate governance

Basic views regarding corporate governance

• The company creed: Quality, Reliability and Service

• The Company’s governing ideal is to contribute to the development of agriculture, horticulture and related businesses while acting ethically in accordance with the spirit of its company creed.

• In accordance with this ideal, the Company will aim to achieve the following by providing high-quality products and services:

1) Contribute to improving the lives and cultural conditions of people around the world

2) Become the world’s leading seed company

1. Structure of corporate governance

(1) Outline of the structure of corporate governance

• A company with an Audit & Supervisory Board

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2) To increase the transparency and effectiveness of the Board of

Directors, the Company has elected an outside director (in 2007); based on his abundant experience, this director

a. Participates in important decisions made by the Board

b. Seeks to improve the quality of the Board’s decision-making

• Composition of Audit & Supervisory Board

1) 3 board members, 2 of whom are appointed from outside the Company

2) The Company establishedan Audit & Supervisory Board Members Office to support the operations of its audit & supervisory board members and its Audit & Supervisory Board.

• Internal Auditing Office, responsible for internal control

1) The Internal Auditing Office audits the Company and its domestic subsidiaries to ensure the health and soundness of their operations.

2) An “internal control evaluator,” appointed by the Board of Directors, reviews the setup and operations of the Internal Auditing Office.

(2) Rationale for adoption of this system

• Based on a judgment that this system will contribute to management

transparency, clarification of management responsibilities and strengthening of management oversight

• In addition to the Audit & Supervisory Board’s oversight of the Board of Directors, the appointment of a fair and independent outside director strengthens the system of internal control, ensuring that operations are executed in an appropriate and highly transparent manner.

• Through its introduction of a new system of corporate executive officers on June 1, 2007, moreover, the Company has devolved authority for the

execution of operations, allowing it to expedite management decision-making and to tap the talents of younger personnel.

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June 30, 2011: Resolution adopted by the Board of Directors regarding revision of the Company’s basic policy on internal control:

I. Organizational structures ensuring that, in executing their duties, Board members and employees act in accordance with the law and the Company’s Articles of Incorporation

• Governing ideal (see “Basic views regarding corporate governance” above): the Company’s major stakeholders are:

1) Persons employed in agriculture and horticulture and related enterprises

2) Shareholders and employees

• Establishment and inculcation of a system of compliance

1) Institution of a compliance manual and other rules related to compliance, which prescribe that all directors and employees abide by the law and by standards of corporate ethics

2) Establishment of a compliance committee, chaired by the president, which makes decisions on important policies related to the

implementation of training, education and other compliance programs

3) Establishment of points of contact for compliance-related consultations both inside and outside the Company (through independent attorneys under contract with the Company) to enable Group employees to consult with and/or notify the Company concerning matters related to the law or to corporate ethics

a. Maintenance of secrecy regarding matters being discussed

b. No actions detrimental to the person making the contact shall be conducted in violation of the Whistleblower Protection Act or of any other laws or company regulations.

• Elimination of antisocial elements

1) The Sakata Group shall stand firm against extortionists and other

elements and groups that threaten the Group organization or its ability to function in a sound and healthy manner.

2) The Sakata Group shall respond to antisocial elements by abiding by the three principles of “making no payments,” “refusal to employ,” and “avoidance of fear.”

(21)

• Improving systems and procedures to ensure the reliability of financial reporting

1) Establishing regulations for internal control, and developing and adopting basic guidelines for internal control related to financial reporting

2) Based on the foregoing, establishing operating procedures and other regulations to ensure that internal controls for financial reporting are put in place and carried out

3) Establishing a process for review of the effectiveness of internal controls related to financial reporting to be carried out by the internal control evaluator

4) With a senior executive (representative director) assuming

responsibility, preparing a report on internal controls as required under the Financial Instruments and Exchange Act

II. System to preserve and manage information on the execution of duties by directors

• As prescribed by the Company’s regulations concerning document management, all documents (including electronic records) related to the execution of duties by directors, along with related materials, shall be preserved and managed by the departments and sections concerned. Such documents, etc., shall be made accessible for viewing on an as-needed basis.

• As regards the management of documents, the Company’s basic policy on information security, its regulations related to the management of personal information, and its regulations on the management of technical secrets shall govern the actions taken.

III. Regulations and other structures related to risk management

• Establishment of a risk management structure

1) Development of a risk management manual to minimize losses and other adverse outcomes for the Sakata Group

2) Establishment of an organization-wide risk management structure centered on a risk management committee

• Risk management under normal circumstances

1) The risk management committee shall gather information on and analyze and evaluate the following kinds of risks related to the Company’s

operations:

(22)

b. Geopolitical and societal changes in regions where the Company conducts business

c. R&D

d. Infringements on intellectual property rights

e. Safety

f. Finances

g. Crimes and misconduct by employees

h. Natural disasters and accidents

2) The committee shall also prepare internal regulations, a risk

management manual, and a business continuity plan for consideration and adoption by the Board of Directors.

3) The committee shall also support preventative measures against such risks through educational and awareness-raising activities.

• Responses to emergencies

1) When a specific threat arises, the Company shall set up a crisis

management response team led by the president, as prescribed by the risk management manual.

2) Under the direction of this crisis management response team, the

divisions that are directly involved and other related divisions shall team up and respond rapidly to the emergency.

IV. Organizational structures to ensure the efficient execution of directors’ duties

• Board of Directors

1) The business of the Board of Directors shall be conducted properly, as prescribed by the Company’s regulations governing the Board of Directors.

2) As a rule, the Board of Directors shall hold regular monthly meetings. At these meetings, it shall discuss and make decisions on important management issues, as prescribed by law, by the Articles of

Incorporation and by the following Company regulations: regulations governing the Board of Directors; regulations on workplace authority; list of specific area of workplace authorities; regulations on the

segregation of duties, etc.

(23)

• Senior management meeting

1) In accordance with the Company’s regulations on senior management meetings, a senior management meeting comprising the president & CEO and all directors above the rank of managing director shall be established. The objective of the senior management meeting shall be to discuss matters pertaining to the management of the Company and the Sakata Group to enable the Board of Directors to discuss and act on such matters in a smooth and expeditious manner.

2) As a rule, the senior management meeting shall meet once every month, as well as at other times as needed.

• System of corporate executive officers:

1) To expedite decision-making by senior management and to enhance the efficiency of execution of operations

2) To establish a clear demarcation between oversight responsibility and operational responsibility

• Decision-making by “ringi” (circulation of documents for approval) 1) A “ringi”-based decision-making system shall be established based on

the Company’s regulations on workplace authority; the aim of this system shall be to enhance the efficiency of everyday operations by directors and corporate executive officers.

2) The Company shall endeavor to increase the efficiency of specific daily operations by:

a) Establishing, through its list of specific areas of workplace authority, detailed assignment of authority that identifies specific tasks and those responsible for them

b) Promoting the rationalization and computerization of each operation

V. Organizational structures that ensure appropriate execution of operations by the Group

• Inculcating a thorough understanding of the Group’s operational policies 1) Holding of biannual meetings among senior executives of the

Company’s major overseas subsidiaries and the Company’s directors and divisional general managers to inculcate a thorough understanding of the Group’s management policies and business objectives

(24)

established to deal with issues related to R&D; manufacturing and distribution; information systems; quality control; international sales; and other matters.

• Establishing a compliance structure that applies to both the Company and the Sakata Group

• Subsidiary management and oversight

1) The Corporate Planning Office shall have jurisdiction in this area

2) In addition, the Company shall assign directors or corporate executive officers as “directors in charge” of individual subsidiaries.

3) Based on regulations governing the management of subsidiaries and affiliated companies, the Corporate Planning Office and directors in charge shall establish a system of coordination under which they shall exchange information and interact individually through subsidiaries’ board of directors’ meetings and other venues to provide proper

guidance to subsidiaries, thus building a stronger internal control system for the Group.

VI. When an audit & supervisory board member assigns one or more employees to assist in his/her duties: matters related to such employee/s and to the

independence of the employee/s from members of the Board of Directors

• In response to a request from the audit & supervisory board members, the Company shall establish an Audit & Supervisory Board Members Office and appoint one or more employees to assist in the audit & supervisory board members’ duties.

• The Board of Directors shall discuss matters related to such employee/s with the Audit & Supervisory Board. These discussions shall include the number of employees assigned to this office, their ranks, reporting lines,

compensation and personnel transfers.

VII. Organizational structures for directors and employees to report to audit & supervisory board members; other structures for reporting to audit & supervisory board members

• When a director or regular employee discovers a fact that could cause significant damage or exert a serious impact on the Company or the Sakata Group, the director or employee shall report this fact to the Audit &

Supervisory Board. The same shall apply when the “fact” in question involves misconduct, or a violation of the law or of the Articles of Incorporation, by a director.

(25)

& supervisory board members on important issues concerning management, the status of operations, etc.

• The audit & supervisory board members shall be entitled to participate in senior management meetings, meetings of the corporate executive officers, meetings of the compliance committee, and other important meetings; they shall also be entitled to review “ringi” documents, financial reports and other materials.

VIII. Other organizational structures to ensure that audits by the audit & supervisory board members shall be implemented effectively

• The representative director/s and audit & supervisory board members shall endeavor, through regularly held meetings, to enhance mutual

communication.

• When deemed necessary for operational reasons, the audit & supervisory board members shall receive reports from and exchange information with the person/s in charge of internal auditing offices, audit & supervisory board members at subsidiaries, or others of equal status on the progress of ongoing audits or the situation with respect to any operation as a means of increasing the effectiveness of their audits.

• When deemed necessary, the audit & supervisory board members may appoint attorneys, CPAs or other external experts to assist in their auditing.

Status of structure of risk management

• Establishment of a risk management structure (See item III under “Corporate governance” above.)

• Risk management under normal circumstances (See item III under “Corporate governance” above.)

• At the operational level

1) Each operating group is dealing appropriately with specific individual risks, in the manner prescribed by the risk management manual and other regulations.

2) Response to specific threats (See item III under “Corporate governance” above.)

(4) Content of agreements limiting liability

(26)

• These agreements contain a maximum liability for the payment of damages by outside directors and outside audit & supervisory board members, which is the minimum amount prescribed under Article 425-1 of the Companies Act.

2. Status of internal audits and audits by audit & supervisory board members

(1) Audit & Supervisory Board

• Monthly meetings at which

1) Each audit & supervisory board member reports on important matters related to audits.

2) Necessary discussions and decision-making are conducted in response.

• Special meetings held on an as-needed basis

• Audits by individual audit & supervisory board members: carried out in accordance with the Audit & Supervisory Board’s policies and regulations regarding division of duties

(2) Audit & Supervisory Board Members Office

• Established in January 2007 to assist the audit & supervisory board members in the performance of their duties

• In June 2008, assignment of a full-time head of the Audit & Supervisory Board Members Office

• Internal audits are carried out by the Internal Auditing Office in accordance with Company regulations.

(3) Coordination among internal audits, audits by audit & supervisory board members and financial audits

• Mutual exchange of information at all times between audit & supervisory board members and the Internal Auditing Office to maintain effective coordination

• Exchange of opinions and relevant information at all times between the financial auditors and audit & supervisory board members

• Regarding the selection of audit & supervisory board members

1) Primary consideration given to the person’s knowledge of finance and accounting

(27)

3. Financial audits

• Conducted by the following certified public accountants and 18 assistants (4 CPAs and 14 others)

• The Company asks KPMG AZSA LLC to conduct its audits in accordance with the Financial Instruments and Exchange Act.

Name Affiliation

No. of consecutive years of auditing the Company’s accounts Designated limited liability partner/engagement partner:

Takahisa Miyamoto

KPMG AZSA LLC 4 years

Designated limited liability partner/engagement partner: Tsunehiro Oki

KPMG AZSA LLC 2 years

Designated limited liability partner/engagement partner: Fukumichi Uchino

KPMG AZSA LLC 1 year

4. Relationships between the Company and its external directors and audit & supervisory board members

• The Company has 1 external director and 2 external audit & supervisory board members.

1) Selection of candidates is based on standards for independence set by the Tokyo Stock Exchange.

2) Although the Company has not established its own standards and policies regarding independence, the TSE’s standards allow it to make selections that avoid risk involving conflicts of interest with shareholders.

• Based on wide-ranging knowledge and experience, external members of the Board play the vital roles of providing objective oversight over management and enhancing management transparency.

1) Kunihiko Sugahara is not a former employee of the Company or any of its subsidiaries or affiliated companies; he does not have any ownership, transactional or other interest in the Company.

2) External audit & supervisory board members Yoshinobu Sato and Noboru Hasegawa are not former employees of the Company or any of its

subsidiaries or affiliated companies; they do not have any ownership, transactional or other interests in the Company.

• The Company has registered Yoshinobu Sato as an independent director/auditor with the Tokyo Stock Exchange.

5. Directors’ compensation

(28)

Total amounts paid out to board members by type of compensation

Millions of yen Amount paid Compensation Bonuses

Retirement benefits

Number of board members in each category

Directors (excluding External Corporate Directors)

160 117 11 31 9

Audit & Supervisory Board Members (excluding External Audit & Supervisory Board Members)

19 17 - 1 2

External Corporate Directors and Audit & Supervisory Board Members

23 22 - 1 4

• Total compensation for each director/audit & supervisory board member of the Company: this information is omitted because no individual’s

compensation exceeds ¥100 million.

• Significant compensation paid to directors who are also employees: not applicable

• Policy regarding amounts paid to board members and the method of calculating such amounts

1) Basic thinking regarding compensation paid to directors: the system of compensation must

a) Enable the Company to secure the services of management personnel capable of driving the growth of the Company as a global enterprise

b) Allow the Company to enhance long-term shareholder value

c) Contribute to a continuous and stable increase in financial performance

d) Be highly objective and transparent in terms of the way the amounts of compensation are determined

2) Amounts paid out as compensation take into consideration

a) Comparisons with other companies, ascertained through surveys by outside consultants

b) A comprehensive range of other factors, including the rank of the

director, his/her operational responsibilities, and his/her contributions to the financial performance of the Company

3) Components of director compensation

a) Fixed monthly salary and bonus linked to financial performance

(29)

c) To encourage directors to understand that fostering

medium-to-long-term growth in enterprise value and shareholder returns is also in their interest, each director contributes a portion of his/her fixed monthly salary to a directors’ share-purchasing plan.

4) Compensation for audit & supervisory board members and outside directors: in view of their independent oversight function, no bonuses linked to financial performance are paid.

5) Compensation Committee

a) This committee is organized under the Board of Directors and deliberates on directors’ compensation.

b) By including the outside director as a member of the committee, the Company seeks to ensure the objectivity and transparency of decisions by the committee.

6. Shareholdings in other companies

• Shares held by the Company for purposes other than pure investment Number of issues: 22

Total value on balance sheet: ¥7,659 million

• Of these, shares whose balance sheet values exceed one-hundredth the value of shareholders’ equity

May 2012 term

Millions of yen

Number of

shares Book value Investment purpose

Maruichi Steel Tube Ltd. (5463) 560,000 915 To strengthen business relationships Kikkoman Corporation (2801) 649,000 602 To strengthen business relationships Yokohama Reito Co., Ltd. (2874) 1,022,000 571 To strengthen business relationships MAX Co., Ltd. (6454) 537,000 494 To strengthen business relationships

The Gunma Bank, Ltd. (8334) 1,078,000 374 To strengthen relationships with financial institutions T&D Holdings, Inc. (8795) 411,600 307 To strengthen business relationships

The Bank of Yokohama, Ltd. (8332) 866,000 304 To strengthen relationships with financial institutions Amano Corp. (6436) 335,000 214 To strengthen business relationships

Mitsubishi Pencil Co., Ltd. (7976) 155,000 205 To strengthen business relationships Bull-Dog Sauce Co., Ltd. (2804) 1,152,000 183 To strengthen business relationships Sotetsu Holdings, Inc. (9003) 736,000 182 To strengthen business relationships Maruzen Showa Unyu Co., Ltd. (9068) 766,000 180 To strengthen business relationships Hakuyosha Company, Ltd. (9731) 850,000 179 To strengthen business relationships

(30)

Millions of yen

Number of

shares Book value Investment purpose

Ono Pharmaceutical Co., Ltd. (4528) 26,300 115 To strengthen business relationships Okamura Corp. (7994) 175,000 97 To strengthen business relationships Fuji Nihon Seito Corporation (2114) 313,000 87 To strengthen business relationships Sodick Co., Ltd. (6143) 158,600 64 To strengthen business relationships

Mizuho Financial Group, Inc. (8411) 530,160 60 To strengthen relationships with financial institutions Sojitz Corporation (2768) 220,000 27 To strengthen business relationships

Mitsubishi UFJ Financial Group, Inc. (8306) 38,900 13 To strengthen relationships with financial institutions Mitsumura Printing Co., Ltd. (7916) 10,000 2 To strengthen business relationships

May 2013 term

Millions of yen

Number of

shares Book value Investment purpose

Maruichi Steel Tube Ltd. (5463) 560,000 1,410 To strengthen business relationships Kikkoman Corporation (2801) 649,000 1,081 To strengthen business relationships Yokohama Reito Co., Ltd. (2874) 1,022,000 816 To strengthen business relationships MAX Co., Ltd. (6454) 537,000 626 To strengthen business relationships T&D Holdings, Inc. (8795) 411,600 517 To strengthen business relationships

The Bank of Yokohama, Ltd. (8332) 866,000 434 To strengthen relationships with financial institutions Amano Corp. (6436) 335,000 355 To strengthen business relationships

The Gunma Bank, Ltd. (8334) 578,000 294 To strengthen relationships with financial institutions Mitsubishi Pencil Co., Ltd. (7976) 155,000 286 To strengthen business relationships

Sumitomo Mitsui Financial Group, Inc. (8316) 68,300 276 To strengthen relationships with financial institutions Maruzen Showa Unyu Co., Ltd. (9068) 766,000 268 To strengthen business relationships

Sotetsu Holdings, Inc. (9003) 736,000 251 To strengthen business relationships Bull-Dog Sauce Co., Ltd. (2804) 1,152,000 207 To strengthen business relationships Ono Pharmaceutical Co., Ltd. (4528) 26,300 186 To strengthen business relationships Hakuyosha Company, Ltd. (9731) 850,000 181 To strengthen business relationships Okamura Corp. (7994) 175,000 109 To strengthen business relationships

Mizuho Financial Group, Inc. (8411) 530,160 103 To strengthen relationships with financial institutions Fuji Nihon Seito Corporation (2114) 313,000 100 To strengthen business relationships

Sodick Co., Ltd. (6143) 158,600 84 To strengthen business relationships Sojitz Corporation (2768) 220,000 39 To strengthen business relationships

(31)

• Shares held by the Company for purely investment purposes

2012 2013

Millions of yen

Total amount on balance sheet

Total amount on balance sheet

Total amount of dividends received

Total amount of gains or losses from sales

Total amount of valuation gains

Unlisted shares 1,079 952 26 0

Shares other than unlisted shares

171 161 4 4 18

7. Required number of directors

The Company has stipulated in its Articles of Incorporation that there shall be no more than 11 directors.

8. Resolutions for the election of directors

The Company has stipulated in its Articles of Incorporation that resolutions concerning the election of directors must be approved as follows: shareholders holding one-third or more of the voting rights of all shareholders eligible to vote must be in attendance, and a majority of these must vote in the affirmative. Cumulative voting is not permitted.

9. Acquisition of the Company’s own shares

The Company has stipulated in its Articles of Incorporation that, in accordance with Article 165-2 of the Companies Act, it is authorized to acquire its own shares through market transactions based on a resolution adopted by the Board of

Directors. The purpose of such acquisitions is to enable the Company to implement agile and efficient strategies with respect to shareholders and financing.

10. Interim dividends

The Company has stipulated in its Articles of Incorporation that, in accordance with Article 454-5 of the Companies Act, it is authorized to pay an interim dividend with a date of record of November 30 each year based on a resolution adopted by the Board of Directors. The purpose of such interim dividends is to enable the Company to execute a dividend policy that is at once stable, agile and proactive.

11. Requirements for special resolutions by the General Meeting of Shareholders

With respect to special resolutions by the General Meeting of Shareholders, as provided for under Article 309-2 of the Companies Act, the Company has stipulated in its Articles of Incorporation that approval of such resolutions shall require that shareholders holding one-third or more of the voting rights of all shareholders eligible to vote be in attendance, and that two-thirds of the

(32)

Financial auditors’ compensation

1. Compensation paid to financial auditors

2012 2013

Millions of yen

Financial audit services

Non-audit services

Financial audit services

Non-audit services

Parent Company 53 - 52

-Subsidiaries - - -

53 - 52

-2. Other important compensation

In the fiscal years ended May 2012 and May 2013, the Company paid auditing compensation of ¥72 million and ¥87 million to KPMG, which audited certain of the Company’s subsidiaries and which is a member firm of the network of financial auditors that audited the Company.

3. Compensation policy for financial audit services

The Company determines the compensation it pays to its financial auditor based on discussions with the auditor, taking comprehensively into account the auditor’s estimation of the number of days required for the audit and the number of auditors whose participation is required in light of the Company’s size and the

(33)

Directors

Name Title

Date joined

company Concurrent occupations Date of birth Term

Thousand shares

Hiroshi Sakata President and Representative Director

May-81 14-Feb-52 2 years from the General Meeting of Shareholders (GMS) held in August 2013

148.3

Hiroshi Arakawa Senior Managing Director

Apr-69 20-Jan-46 2 years from GMS held in August 2013

13.4

Risho Uchiyama Managing Director Apr-84 29-Jan-62 2 years from GMS held in August 2013

5.5

Hideto Kaneko Managing Director Apr-90 18-Jun-62 2 years from GMS held in August 2013

202.0

Tsutomu Kagami Managing Director Apr-87 17-Jan-62 2 years from GMS held in August 2013

2.8

Makoto Ohta Managing Director Jul-90 21-Oct-48 2 years from GMS held in August 2013

10.6

Seiko Tasaki Director Sep-92 16-Dec-48 2 years from GMS held in August 2013

3.9

Shuitsu Honda Director Apr-87 25-Nov-62 2 years from GMS held in August 2013

2.7

Akifumi Ujita Director May-09 5-Aug-57 2 years from GMS held in August 2013

3.0

Kunihiko Sugahara Director Aug-13 Certified public accountant

8-Mar-52 2 years from GMS held in August 2013

-Mitsuo Enda Standing Audit & Supervisory Board Member

Apr-71 27-Jan-49 4 years from GMS held in August 2012

11.1

Yoshinobu Sato Audit & Supervisory Board Member

Aug-03 Sojitz Foods Corp. 30-Jun-41 4 years from GMS held in August 2011

5.0

Noboru Hasegawa Audit & Supervisory Board Member

Aug-12 Chuo Fudosan Co., Ltd. 9-Oct-48 4 years from GMS held in August 2012

-408.5

Current assignments and previous positions in the Company have been omitted.

Under law, the Company is required to have a certain number of audit & supervisory board members. To prepare for the possibility that it might not be able to fill the required number of seats, the Company has elected an alternate audit & supervisory board member in accordance with Article 329-2 of the Companies Act.

Name Title Concurrent occupations Date of birth

Thousand shares

(34)

-Employees

Consolidated 2013

Business segment Number

Domestic wholesaling 227

Overseas wholesaling 1,267

Retailing 91

Others 13

Corporate staff 400

1,998

Parent Total or average

Number 639

Average age 36.9

Average years of service 13.5

Average annual salary (thousands of yen) 5,781

Average annual salary includes bonuses and overtime pay.

Union

Sakata Seed Corporation’s union is an intra-Company union independent of any outside umbrella organization. The Company enjoys amicable labor relations.

Acquisition of treasury stock

Types of shares

The acquisition of common stock as stipulated under Article 155-7 of the Companies Act.

Acquisitions which are not based on resolutions adopted by the General Meeting of Shareholders or the Board of Directors

Yen No. of shares Total value

Treasury stock acquired during the year under review 1,121 1,228,285

Treasury stock acquired during the period under review 52 71,812

Disposal and ownership of treasury stock

Fiscal year under review Period under review

Yen

Number of shares

Total value of disposed shares

Number of shares

Total value of disposed shares

Acquired treasury stock sold to underwriters - - -

-Acquired treasury stock subsequently cancelled - - -

-Acquired treasury stock transferred through mergers, share exchanges or corporate divisions

- - -

-Others

(Treasury stock acquired in response to shareholders’ requests to purchase shares of less than one unit)

- - -

(35)

-Cash Flows

Consolidated statement of cash flows

Years ended May 31; Millions of yen 2011 2012 2013

Net cash provided by (used in) operating activities

Net income before taxes and other adjustments 2,026 2,342 4,290

Depreciation expenses 1,889 1,599 1,812

Amortization of negative goodwill (1) (1) (1)

Increase in allowance for doubtful accounts 58 67 69

Interest and dividend income (342) (333) (303)

Interest expenses 72 60 56

Foreign exchange losses (gains) 76 (6) (162)

Impairment losses 550 142 119

Losses on valuation of investment securities 767 377

-Losses (gains) on sales of investment securities (181) 25 (680)

Gains on redemption of investment securities (82) -

-Increase in trade receivables (276) (303) (561)

Increase in inventories (1,222) (1,201) (1,564)

Increase (decrease) in notes and accounts payable 745 340 (1,064)

Increase (decrease) in accounts payable - other (506) 759 (800)

Others 132 (410) (282)

3,706 3,457 928

Interest and dividends received 343 324 307

Interest paid (86) (61) (56)

Income taxes refund 106 115 113

Income taxes and others paid (501) (815) (577)

(36)

Years ended May 31; Millions of yen 2011 2012 2013

Net cash provided by (used in) investing activities

Increase in time deposits (1,829) (2,313) (1,972)

Proceeds from decrease in time deposits 1,185 1,170 2,904

Payments for acquisition of tangible fixed assets (1,520) (1,501) (1,479)

Proceeds from sales of tangible fixed assets 233 56 406

Payments for acquisition of intangible fixed assets (41) (396) (408)

Proceeds from redemption of marketable securities 330 30 100

Payments for purchase of investment securities (245) (201) (204)

Proceeds from sales of investment securities 1,215 193 1,042

Proceeds from redemption of investment securities 200 300

-Proceeds from maturity of insurance funds 55 -

-Others (58) 71 167

(476) (2,592) 555

Net cash provided by (used in) financing activities

Decrease in short-term borrowings (516) (92) (966)

Proceeds from long-term borrowings 8 118 976

Payments for purchase of treasury stock (1,133) (0) (1)

Dividend payments (920) (899) (902)

Others (93) (104) (189)

(2,655) (978) (1,082)

Effects of exchange rate changes on cash and cash equivalents (228) (133) 427

Increase (decrease) in cash and cash equivalents 207 (683) 615

Cash and cash equivalents at beginning of year 7,093 7,300 6,617

Cash and cash equivalents at end of year 7,300 6,617 7,233

Relationship between the balance of cash and cash equivalents as of term-end and balance sheet items

Years ended May 31; Millions of yen 2011 2012 2013

Cash and deposits 13,232 13,659 13,511

Time deposits, etc., of 3 months or longer (5,931) (7,041) (6,277)

(37)

Capital expenditures

1. Group-wide capital investment: ¥1,825 million

• New ERP system at Sakata Seed America, Inc.: ¥134 million

• Renewal of garden center: ¥107 million 2. Capital investment by business segment

• Domestic wholesaling: ¥296 million

• Overseas wholesaling: ¥997 million

• Retailing: ¥196 million

• Others: ¥4 million

• Corporate assets: ¥330 million

3. No significant retirements or sales of facilities occurred during the year under review.

Dividend policy

Basic stance on dividends

1. The Company considers returning profits to shareholders to be a significant issue for management.

2. Over the medium-to-long term, its basic policy on dividends will be determined by:

• The financial results for each term

• Management’s need to ensure sufficient retained earnings to enhance its operational capabilities and to strengthen the foundations of the Company’s business

• The need to maintain stability and continuity of payouts Payouts

1. Frequency of dividend payouts: twice annually

• Interim dividend, as determined by the Board of Directors

• Year-end dividend, as determined by the General Meeting of Shareholders 2. Total dividends: ¥25 per share, including an interim dividend of ¥10 per share and

(38)

Allocation of retained earnings

To respond to the changes it foresees in the business environment and to enhance its ability to compete on cost, the Company shall:

1. Strengthen its R&D and production capabilities to respond effectively to market needs

2. Invest in resources that further its global strategies

Articles of Incorporation

With regard to interim dividends, under Article 454-5 of the Companies Act, the Company has provided for the following in its Articles of Incorporation.

“The Company may pay out interim dividends with a date of record of November 30 each year, based on a resolution by its Board of Directors.”

Dividends paid for the year under review are as shown below.

Date of decision Dividend payout Dividend per share

(Millions of yen) (Yen)

January 15, 2013

Resolution of Board of Directors

450 10

August 27, 2013

Resolution of General Meeting of Shareholders

(39)

Operations

Consolidated income statement

Years ended May 31; Millions of yen 2011 2012 2013

Net sales 47,165 46,988 50,274

Cost of goods sold 23,402 23,965 25,921

Gross profit on sales 23,763 23,023 24,353

Selling, general and administrative expenses 20,529 20,460 22,133

Operating income 3,233 2,562 2,219

Nonoperating income

Interest income 120 120 112

Dividend income 221 212 191

Rental income 186 208 217

Amortization of negative goodwill 1 1 1

Foreign exchange gains - - 795

Others 93 81 125

622 624 1,443

Nonoperating expenses

Interest expenses 72 60 56

Sales discounts 10 12 14

Foreign exchange losses 312 177

-Others 50 38 26

445 288 97

Ordinary profit 3,410 2,899 3,564

Extraordinary income

Gains on sales of fixed assets 11 15 193

Gains on sales of investment securities 181 - 697

Gains on redemption of investment securities 82 -

-Others 25

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1 北海道 北海道教育大学岩見沢校  芸術・スポーツ産業化論 2019年5月20日 藤原直幸 2 岩手県 釜石鵜住居復興スタジアム 運営シンポジウム

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